CORPORATE LAW

Incorporation and registration of company

SANDEEP CHAWDA
BALL.B(HONS.)
SUBMITTED TO PROF. QAZI MOHD. USMAN
ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my subject teacher Dr.

Qazi Mohd. Usman who gave me the golden opportunity to do this wonderful
assignment on the topic position and liability of promoters, which helped me in
doing a lot of Research from which I came to know about so many new things
in my subject. I am thankful to him. Secondly I would also like to thank my
parents and friends who helped me a lot by giving me creative ideas and helping
me in finalizing this project within the limited time frame.

THANKING YOU

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Contents
INTRODUCTION ....................................................................................................................................... 4
Formation of a Company ........................................................................................................................ 5
Incorporating a Company - Approval of Name ....................................................................................... 5
The Memorandum and Articles of the company. ................................................................................... 6
Certificate of Incorporation .................................................................................................................... 6
Issuing the of Certificate of Incorporation .............................................................................................. 7
Miscellaneous Documents ...................................................................................................................... 7
Tax Registration ...................................................................................................................................... 8
Corporate Identity Number (CIN) ........................................................................................................... 8
Effect of Registration of a Company ..................................................................................................... 10
REGISTRATION OF COMPANY ............................................................................................................... 10
Books of accounts to be kept by company ........................................................................................... 11
Certain Accounting related issues......................................................................................................... 12
BIBLIOGRAPHY ......................................................................................... Error! Bookmark not defined.

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INTRODUCTION
Formation of company in India
The Companies Act of 1956 sets down rules for the establishment of both public and private
companies. The most commonly used corporate form is the limited company, unlimited
companies being relatively uncommon. A company is formed by registering the
Memorandum and Articles of Association with the State Registrar of Companies of the state
in which the main office is to be located.

Foreign companies engaged in manufacturing and trading activities abroad are permitted by
the Reserve Bank of India to open branch offices in India for the purpose of carrying on the
following activities in India:

1- To represent the parent company or other foreign companies in various matters in India,
for example, acting as buying/selling agents in India, etc.

2-To conduct research work in which the parent company is engaged provided the results of
the research work are made available to Indian companies

3-to undertake export and import trading activities

4-to promote possible technical and financial collaboration between Indian and overseas
companies.

Application for permission to open a branch, a project office or liaison office is made via the
Reserve Bank of India by submitting form FNC-5 to the Controller, Foreign Investment and
Technology Transfer Section of the Reserve Bank of India. For opening a project or site office,
application may be made on Form FNC-10 to the regional offices of the Reserve Bank of India.
A foreign investor need not have a local partner, whether or not the foreigner wants to hold full
equity of the company. The portion of the equity thus not held by the foreign investor can be
offered to the public and if we talk about the companies act,2013 we should introduce with
The Companies Act, 2013 details the regulations and company registration papers essential for
the incorporation of a company. In this article, we will understand all such rules and documents
listed in the Act. To begin with, let’s define the promoters of a company.

Promoters
Section 2(69) of the Companies Act, 2013, defines promoters as an individual who:-

Is named as a promoter in the prospectus or in the annual returns of the company, Controls the
affairs of a company, directly or indirectly or Advises, directs, or instructs the Board of
Directors.

Hence, we can say that promoters are people who originally come up with the idea of the
company, form it and register it. However, solicitors, accountants, etc. who act in their
professional capacity are NOT promoters of the company.

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Formation of a Company
Before the company is registered, it is essential to obtain the approval of the Registrar to its
proposed name. There is a specific application form for this purpose. The promoter generally
selects a few suitable names in order of preference and apply to the National Company Law
Tribunal through the Registrar of the State in which the company is to be registered in Form
No. 1A along with a fee of Rs.100. On hearing about the available name, the promoter has to
decide the name for the company.

Formation of a public company involves 7 or more people who subscribe their names to the
memorandum and register the company for any lawful purpose. Similarly, 2 or more people
can form a private company. One person can form a One-person company. Registration or
Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for incorporation of a company.
Here is the procedure:

Filing of company registration papers with the registrar

In order to incorporate a company, the subscriber has to file the following company
registration papers with the registrar within whose jurisdiction the location of the registered
office of the proposed company falls.

Incorporating a Company - Approval of Name

The first step in the formation of a company is the approval of the name by the Registrar of
Companies (ROC) in the State/Union Territory in which the company will maintain its
Registered Office. This approval is provided subject to certain conditions: for instance, there
should not be an existing company by the same name. Further, the last words in the name are
required to be "Private Ltd." in the case of a private company and "Limited" in the case of a
Public Company. The application should mention at least four suitable names of the proposed
company, in order of preference. In the case of a private limited company, the name of the
company should end with the words "Private Limited" as the last words. In case of a public
limited company, the name of the company should end with the word "Limited" as the last
word. The ROC generally informs the applicant within seven days from the date of submission
of the application, whether or not any of the names applied for is available. Once a name is
approved, it is valid for a period of six months, within which time Memorandum of Association
and Articles of Association together with miscellaneous documents should be filed. If one is
unable to do so, an application may be made for renewal of name by paying additional fees.
After obtaining the name approval, it normally takes approximately two to three weeks to
incorporate a company depending on where the company is registered.

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The Memorandum and Articles of the company.
The Memorandum of Association and Articles of Association are the most important
documents to be submitted to the ROC for the purpose of incorporation of a company. The
Memorandum of Association is a document that sets out the constitution of the company. It
contains, amongst others, the objectives and the scope of activity of the company besides also
defining the relationship of the company with the outside world. The Articles of Association
contain the rules and regulations of the company for the management of its internal affairs.
While the Memorandum specifies the objectives and purposes for which the Company has been
formed, the Articles lay down the rules and regulations for achieving those objectives and
purposes.

The ROC will give the certificate of incorporation after the required documents are presented
along with the requisite registration fee, which is scaled according to the share capital of the
company, as stated in its Memorandum. A private company can commence business on receipt
of its certificate of incorporation.

A public company has the option of inviting the public for subscription to its share capital.
Accordingly, the company has to issue a prospectus, which provides information about the
company to potential investors. The Companies Act specifies the information to be contained
in the prospectus.

The prospectus has to be filed with the ROC before it can be issued to the public. In case the
company decides not to approach the public for the necessary capital and obtains it privately,
it can file a "Statement in Lieu of Prospectus" with the ROC.

On fulfillment of these requirements, the ROC issues a Certificate of Commencement of

Business to the public company. The company can commence business immediately after it
receives this certificate.

Certificate of Incorporation
After the duly stamped Memorandum of Association and Articles of Association, documents
and forms are filed and the filing fees are paid, the ROC scrutinizes the documents and, if
necessary, instructs the authorised person to make necessary corrections. Thereafter, a
Certificate of Incorporation is issued by the ROC, from which date the company comes in to
existence. It takes one to two weeks from the date of filing Memorandum of Association and
Articles of Association to receive a Certificate of Incorporation. Although a private company
can commence business immediately after receiving the certificate of incorporation, a public
company cannot do so until it obtains a Certificate of Commencement of Business from the
ROC.
All subscribers have to sign on the memorandum. The person who is engaged in the formation
of the company has to give a declaration regarding compliance of all the requirements and rules
of the Act. A person named in the Articles also has to sign the declaration. Each subscriber to

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the Memorandum and individuals named as first directors in the Articles should submit an
affidavit with the following details:

Declaration regarding non-conviction of any offense with respect to the formation,

promotion, or management of any company.

He has not been found guilty of fraud or any breach of duty to any company in the last five
years. The documents filed with the registrar are complete and true to the best of his knowledge.

Address for correspondence until the registered office is set-up.

If the subscriber to the Memorandum is an individual, then he needs to provide his full name,
residential address, and nationality along with a proof of identity. If the subscriber is a body
corporate, then prescribed documents need to be provided. Individuals mentioned as
subscribers to the Memorandum in the Articles need to provide the details specified in the point
above along with the Director Identification Number. The individuals mentioned as first
directors of the company in the Articles must provide particulars of interests in other firms or
bodies corporate along with their consent to act as directors of the company as per the
prescribed form and manner.

Issuing the of Certificate of Incorporation

Once the Registrar receives the information and company registration papers, he registers all
information and documents and issues a Certificate of Incorporation in the prescribed form.

Miscellaneous Documents

The documents/forms stated below are filed along with Memorandum of Association and
Articles of Association on payment of filing fees (depending on the authorised capital of the
company):
1- Declaration of compliance, duly stamped

2-Notice of the situation of the registered office of the company

3-Particulars of Directors, Manager or Secretary

4-Authority executed on a non-judicial stamp paper, in favour of one of the subscribers to the
Memorandum of Association or any other person authorizing him to file the documents and
papers for registration and to make necessary corrections, if any

5- The ROC's letter (in original) indicating the availability of the name.

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Tax Registration
Businesses liable for income tax must obtain a tax identification card and number [known as
Permanent Account Number (PAN)] from the Revenue Department. In addition to this,
businesses liable to withhold tax must necessarily obtain a Tax Deduction Account Number
(TAN). Both the PAN and the TAN must be indicated on all the returns, documents and
correspondence filed with the Revenue Department. The PAN is also required to be stated in
various other documents such as the documents pertaining to sale or purchase of any
immovable property (exceeding Rs. five lakh), sale or purchase of a motor vehicle, time
deposit (exceeding Rs. 5 lakh), contract for sale or purchase of securities (exceeding Rs. 10
lakh), to name a few.

Rules applicable
Companies (Central Governments') General Rules and Forms,1956
Filing Registering/Approving Authority
One copy has to be submitted along with a forwarding letter addressed to the concerned
Registrar of Companies.

Enclosures
The declaration must be submitted with the following annexure

1- Document evidencing payment of fee

2- Memorandum and Articles of Association

3-Copy of agreement if any, which the proposed company wishes to enter into with any
individual for appointment as its managing or whole-time director or manager

4-Form 18

5-Form 32 (except for section 25 company)

6-Form 29 (only in case of public companies)

7-Power of Attorney from subscribers

8-Letter from Registrar of Companies making names available

9-No objection letters from directors/promoters

10-Requisite fees either in cash or demand draft

Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to the company which is a
distinct identity for the company. The allotment of CIN is on and from the company’s
incorporation date. The certificate carries this date.

Maintaining copies of Company registration papers

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The company must maintain copies of all information and documents until dissolution.

Furnishing false information at the time of incorporation

During the formation of a company, an individual can:

Furnish incorrect or false information

Suppress any material information in the documents provided to the Registrar for the
incorporation, on purpose

In such cases, the individual is liable for action for fraud under section 447.

The company is already incorporated based on false information

If a company is already incorporated but it is found at a later date that the information or
documents submitted were false or incorrect, then the promoters, first directors, and persons
making a declaration is liable for action for fraud under section 447.

Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect information or representation or

suppressing material facts or information in the documents furnished, the Tribunal can pass the
following orders (if an application is made and the Tribunal is satisfied with it):

Pass an order to regulate the management of the company. It can include changes in its
Memorandum and Articles if required. This order is either in public interest or in the interest
of the company and its members and creditors.

Make the liability of its members unlimited

Order removal of the name of the company from the Registrar of Companies

Order the company to wind-up

Pass any other order as it deems fit

Before passing an order, the Tribunal has to give the company a reasonable opportunity state
its case. Also, the Tribunal should consider the transactions of the company including
obligations contracted or payment of any liability.

List of Directors
A complete list of directors, their addresses and occupations and age. If not separate list is filed,
the subscribers to the Memorandum are deemed to be the first directors.

Consent of the Directors

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When Directors of a Company are appointed by the Articles of Association or named in the
prospectus, a written consent to act as directors and also a written undertaking to take up and
pay for the qualification shares if any are mandatory in Incorporation of a Company.

Statutory Declaration
A statutory declaration by any one of the following persons stating that all the requirements of
the Act regarding Registration have been duly complied with:

1. An Advocate of the Supreme Court or High Court.

2. An Attorney or Pleader who is entitled to appear before a High Court.
3. A Chartered Accountant who is engaged in formation of the company and also
practicing in India

Effect of Registration of a Company

According to Section 9 of the Companies Act, 2013, these are the effects of registration of a
company:

From the date of incorporation, the subscribers to the Memorandum and all subsequent
members of the company are a body corporate. A registered company can exercise all functions
of a company incorporated under the Act. Also, the company has perpetual succession with
power to acquire, hold, and dispose of property of all forms. Also, it can contract, sue and be
sued by the said name.

Further, the company becomes a legal person separate from the incorporators from the date of
incorporation. Also, a binding contract comes into existence between the company and its
members as mentioned in the Memorandum and Articles of Association. Until the company
dissolves or the Registrar removes it from the register, it has perpetual existence.

REGISTRATION OF COMPANY
The Registrar of Companies will then verify the documents submitted for registration. If there
are any discrepancies found, concerned person was called to visit the Registrar’s office to
rectify the errors in the documents. If the documents for registrations are found in order, the
Registrar will register the company and a Registration number is allotted.

The Registrar under his hand and Seal of his office will issue a Certificate of Incorporation.
The date given by the Registrar in the certificate will be the date of incorporation of the
company. The company will be considered to be a legal entity from this date.

Certificate of Incorporation of the Company

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After the above documents are filed with the Registrar and the prescribed fees are paid and the
Registrar is satisfied that all the requirements of the Act regarding the registration have been
complied with, he will register the documents and retain them.

The Registrar will then issue a certificate known as Certificate of Incorporation and enter the
name of the company in the Register kept in his office. This Certificate of Incorporation entitles
the company as a legal person. In other words, the company is born upon the issue of Certificate
of Incorporation.

Conclusiveness of the Certificate of Incorporation

According to Companies Act, the certificate is conclusive evidence that all the requirements of
the Act in regard to the formation and registration of the company have been complied with.
The effects of the certificate of incorporation can be summed up as follows:

1. Neither the Court nor the Registrar can cancel the Certificate of Incorporation even if the
company is formed for an illegal purpose.

2. The validity of the Certificate of Incorporation cannot be debated or argued upon on any
grounds whatsoever.

3. When a certificate is issued, the new company is born. In other words, a legal person has
come into existence through a legal process.

4. The date mentioned in the certificate is the date of incorporation of the company.

Even if the signatories were all infants, the certificate would be conclusive.

Specimen copy of Certificate of Incorporation

Capital Subscription Stage

A private company or a public company not having share capital can commence business
immediately on its incorporation. Capital Subscription Stage and Commencement of Business
Stage are relevant only in the case of a public company having a share capital. Such a company
has to pass through these two additional stages before it can commence its business.

The capital subscription stage deals with the task of obtaining the necessary capital for the
company. For this purpose, immediately after the incorporation, a meeting of the Board of
Directors is conducted to deal with the following business:

Books of accounts to be kept by company

Every company is required to maintain proper books of account with respect to all sums of
money received and expended, all sales and purchases of goods, the assets and liabilities.
Central Government may also specifically require the maintenance of certain additional

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particulars with respect to certain classes of Companies. The books of account relating to
eight years immediately preceding the current year together with supporting vouchers are
required to be preserved in good order. Every profit and loss account and balance sheet of the
company (together referred to as financial statements) is required to comply with the
accounting standards issued by the Institute of Chartered Accountants of India. Any
deviations from the accounting standards, including the reasons and consequent financial
effect, is required to be disclosed in the financial statements.

The responsibility for the preparation of financial statements on a going concern basis is that
of the management. The management is also responsible for selection and consistent
application of appropriate accounting policies, including implementation of applicable
accounting standards along with proper explanation relating to any material departures from
those accounting standards. The management is also responsible for making judgements and
estimates that are reasonable and prudent so as to give a true and fair view of the state of
affairs of the entity at the end of the financial year and of the profit or loss of the entity for
that period.

Annual return
Every company having a share capital is required to file an annual return with the ROC
within 60 days from the date on which the AGM of the company was held or where the AGM
is not held, then within 60 days of the last date on which the AGM was required to be held.

Certain Accounting related issues

Depreciation
The company law in India permits the use of depreciation rates according to the nature of the
classes of assets. Assets can be depreciated either on the basis of straight-line method (based
on the estimated life of the asset) or on the basis of reducing balance method. The law
prescribes the minimum rates of depreciation. A company may, however, provide for a higher
rate of depreciation, based on a bonafide technological evaluation of the asset. Adequate
disclosure in the annual accounts must be made in this regard.

Dividend
There is no limit on the rate of dividend but there are certain conditions prescribed with
regard to computation of profits that can be distributed as dividend. Generally, no dividend
can be paid for any financial year except out of the profits of that year after making an
adequate provision for depreciation subject to certain conditions.
Dividends may also be distributed out of accumulated profits.

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Repatriation of profits
A company has to retain a maximum of 10% of the profits as reserves before the declaration
of dividends. These reserves, inter alia, can be subsequently converted into equity by way of
issue of bonus shares. Dividends are freely repatriable once the investment approval is
granted.

Imposition of taxes
Currently, domestic companies are taxable at the rate of 35.875% (inclusive of surcharge of
2.5%) on its taxable income. Foreign companies are taxed at a marginally higher rate of 41%
(including surcharge of 2.5%). However, in case where the income tax liability of the
company under the provisions of the domestic tax laws works out to less than 7.5% of the
book profits (derived after making the necessary adjustments), a Minimum Alternate Tax of
7.6875% (including a surcharge of 2.5%) on the book profits, would be payable. Domestic
companies are required to pay a dividend distribution tax of 12.8125% (including surcharge
of 2.5%) on the dividends distributed during the year.

Companies are required to withhold tax under the domestic law from certain payments
including salaries paid to employees, interest, professional fee, payments to contractors,
commission, winnings from games / lottery / horse races etc. Moreover, taxes have to be
withheld from all payments made to non-residents at the lower of rates specified under the
domestic law or under the applicable tax treaty, if any.

Penalty
# Imprisonment up to two years and fine
# Person liable for default
# Person signing the declaration

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BIBLIOGRAPHY

 THE NEW COMPANY LAW, BY Dr. N.V. PARANJAPE, SIXTH

EDITION, CENTRAL LAW AGENCY

 legalservicesindia.com

 yourarticlelibrary.com

 indiankanoon.org

 businessmanagementideas.com/company-management

 lawctopus.com

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